Japan manufacturing activity shrinks for first time in a year

Japan’s manufacturing activity contracted in April for the first time in more than a year, a survey showed on Wednesday, as companies cut production immediately following an increase in the national sales tax.

The Markit/JMMA Japan manufacturing purchasing managers index (PMI) fell to a seasonally adjusted 49.4 from 53.9 the previous month.

The index fell below the 50 threshold that separates expansion from contraction for the first time since February last year.

Prime Minister Shinzo Abe’s government raised the national sales tax to 8 per cent from 5 per cent on April 1 to meet rising welfare costs.

Since the middle of last year, sales of apartments, houses, cars and durable goods have been rising. Consumers also stocked up on daily goods in the days leading up to the tax hike but were expected to curb their spending in the weeks after the tax increase.

“As was expected, the implementation of the increase in the sales tax negatively impacted on Japanese manufacturing companies,” Amy Brownbill, a Markit economist, said.